A beginner's guide on how to invest and grow your money

How to Invest and Grow Your Money: Beginner’s Guide

Do you want to grow your money and invest in a way that will help you achieve financial freedom?

Do you know how to get started with investing or what the best ways are to do it?

I’ll be discussing some tips, tricks, and strategies on how to invest wisely. I’ll also touch on different types of investments that can help accelerate your growth process.

We all have goals, whether they’re long-term like retirement savings or short-term like taking a vacation next year. But no matter what level of investment experience you have, there is always something new to learn about investing! 

Reading this blog post will provide insight into different ways you can invest your money so that it grows faster than inflation while still being safe from market fluctuations.

What is Investing

Investing is commonly referred to as a way to save and make money at the same time. 

It involves purchasing assets such as stocks, bonds, property, or goods to make a profit.

Buying an asset for a low price and selling it at a higher price, for example, can be considered investing.

Investments are characterized by time – the longer you invest your money, the more likely you’ll have a high return on your investment when you’re ready to cash in.

Different investments have different times – some require soon-to-be buyers who will be profitable with little effort (putting out money for savings accounts) and others that require much longer periods of time (real estate).

There are other different types of investments in between the short-term and long-term investment extremes, and they all have varied risk-reward amounts.

For most young people, utility bills, debt payments, rent, and upkeep might seem like they’re everything you can afford.

However, after you master some financial disciplines such as budgeting for your monthly expenses, investing becomes easier.

If you’ve only started into the world of investing, there are many questions and uncertainties until you’ve fully understood the idea of investing and growing your money.

Types of Investments for Beginners

There are three main types of investments – stocks and bonds, which provide equity and income respectively; real estate, which provides a return on the investment through rental properties; and cash equivalents, such as Treasury Bills.

The specific type of investment you should choose depends on your personal goals.

The basic investor invests money for a single financial goal with an end date in mind. A good example is investing for your education.

There are also other types of investments to hedge against inflation or investment risks.

However, this article only focuses on investments that can bring in more money for you and help you achieve financial freedom.

Stocks

A stock is a piece of ownership in a company that pays dividends.

Stocks are traded on both the NASDAQ and NYSE exchanges, with stocks typically classified as small-cap, medium-cap, and large-cap stocks. 

When you invest in stocks, you are buying a part of a company and becoming one of that company’s owners.

The stocks can be traded on an exchange, and they often have a price that fluctuates with the company’s performance.

When you’re ready to sell your stocks, you can do so through a broker (online or brick-and-mortar).

The profit or loss that you make with your stocks investment depends on the success or failure of the company.  

Stocks are divided into two different types – common and preferred stocks. 

Common stocks allow the investor to have direct ownership of a company and are traded publicly.

Common stocks expose you to a company’s success or loss. The share price of stocks can rise and fall, and there is no ceiling to the value. They can either double or triple over a period.

A company can pay dividends to common stock owners, but it isn’t required to pay you. The amount of dividend paid isn’t guaranteed, and it can be reduced or not paid at all.

Preferred stocks entitle you to dividends and carry less risk than common stocks, but your potential for short-term gains is also lower.

If you own preferred stocks, you ar entitled to a fixed dividend payment that is paid regularly for as long as you own the stocks.

Preferred stocks come with voting rights and a decent return, which is why some people might consider them a better investment instrument for passive income.

Stock Classes

Besides choosing between common and preferred stocks, a company can offer other publicly traded share classes, often designated with alphabetical letters, most commonly A, B, and C.

Shares sold under the Class A designation generally represent a more significant share of company earnings and voting rights, but they also carry a steeper price.

In most cases, a company with multiple share classes will only trade one share class, and the rest of the share classes may be non-traded.

Bonds

A bond is a type of loan that an investor like you offers to a government, federal agency, or corporation in exchange for interest payable together with the principal after a specific term known as the date of maturation.

A bondholder is a lender that loans the money, and bonds are one of your investment options if you want to diversify your investment portfolio with low-risk instruments.

Bonds include treasury bonds, agency bonds, corporate bonds, municipal bonds, etc.

Bonds can be short-term bonds that mature in less than a year or long-term bonds with maturity periods longer than 10 years. You can also purchase bonds within specific maturity dates like “3 years”.

Bonds can be risky investments, especially if you want to sell them back before the agreed maturity date. Also, bond mutual funds prices may be volatile similar to the volatility of stock mutual funds.

Bond Types

There are many types of bonds that are issued by different entities. They can be issued by governments, international bodies, corporations, financial institutions, and municipals.

The most common types of bonds include;

  • Treasury bonds
  • Savings bonds
  • Mortgage-backed securities
  • Corporate bonds
  • Municipal bonds
  • Emerging Markets and international bonds

Mutual Funds and ETFs 

Mutual funds and ETFs are a way to invest in stocks or bonds without picking the individual securities yourself.

Mutual funds pool money from investors and buy a diverse mix of investments in one package. Mutual funds can also be traded just like stocks during the day when everybody is awake.

ETFs is the abbreviation for Exchange-Traded Funds. Mutual funds are similar to ETFs in many ways, but they have some key differences.

Both of them can be generally used as investment instruments for passive income or growth capital.

You probably know that mutual funds and ETFs are investment tools that allow you to own different stocks without actually having to select each individual stock yourself.

  • They are both managed passively.
  • Mutual funds and ETFs have management fees, but they can still be better investment instruments for certain people.
  • Mutual funds and ETFs can help you get started investing in the stock market with very little money.
  • Mutual funds and ETFs require time to learn how to use them properly,

These investments may seem like more work at first, but they may be better investment instruments for many people.

Mutual funds and ETFs have fees, which can be costly when you sell. 

However, they are a great way to save for retirement or college without having your money taken away immediately by the IRS because of their tax advantages.

They can be used in your retirement or college savings plan to help you save for future goals without losing money to taxes immediately.

You can also avoid the costly commission fees by trading yourself on the free brokerage website that comes with most mutual funds. You can even use an app like Acorns.

How Much Should You Invest?

The amount of money you invest is determined by your investment goals and when you want to achieve them.

For most people, the biggest reason for investing is retirement.

Ideally, your aim should be to invest 10% to 15% of your income every year for retirement.

Ensure that while choosing an investment goal, you set a clear time horizon and the total amount of money you should have saved then.

You can then work backward to break down the total amount into monthly or weekly figures to inform the exact amount of money you should be investing.

Is there a Risk-free Investment?

Investing is always associated with a risk level. The only “risk-free” investing strategy is fixed-income, like bonds that don’t change much in price and thus have less volatility.

Portfolio diversification helps mitigate investment risks–which lowers the likelihood of losing large sums to any one specific investment.

There are various acceptable risks and rewards associated with different investments, and it’s your prerogative to understand them so that you can make an informed decision.

Mint is one of the best financial literacy apps for millennials and young that can help you know how to invest

How to Invest and Growing Your Money

The first step to investing is picking an investment strategy that matches the amount you want to invest and the time you need to achieve your investment goals. You also need to know how much risk you are willing to handle in your investment journey.

1. Start Investing As Early As Possible

Investing can be both fun and profitable. The earlier you start, the more time your money will have to grow.

The best investment strategy is to invest as early as possible, and your investment returns will start compounding early. Your investment returns will start to bring in returns as well.

2. Decide How Much Money You Will Be Investing

Your investment goals and the time you should achieve them will help you determine how much you should invest.

Most people want to save up for retirement. If you have a retirement account such as 401(k) that offers matching money, investing is easy. Aim at contributing enough so that you can earn the full match.

As indicated earlier, you may want to try investing 10-15% of your annual income towards your retirement.

3. Create an Investment Account

If you don’t have your 401(k) account yet, you can consider having a retirement account such as a traditional Roth or a Roth IRA account.

Retirement accounts only serve the purpose of retirement, and they come with restrictions as to when and how you can take your money out.

If you want to invest for other reasons, ensure that you have a taxable brokerage account, and avoid saving in a retirement account.

Contrary to what most people think, you don’t need a lot of money to start investing or open an investment account. You can even start investing with as little as $500.

Also, there are plenty of online brokers who offer both traditional and Roth IRA and other regular brokerage investment accounts with no minimum investment requirements. Other investments also require a relatively low investment amount for you to start.

4. Understand Your Investment Options

You can either invest in a 401(k) or a similar retirement plan matched by an employer in a traditional or Roth IRA. You can also invest in a standard investment account of your choice.

You can pick any investment instrument at this stage, as long as you know how it works and the risk it exposes you to.

Your investment options include stocks, bonds, Mutual funds, and ETFs.

5. Choose an Investment Strategy

Your saving goals, the money you need to achieve these goals, and time horizons indicate the investment strategy you should use.

Investment strategies are grouped into four major categories: aggressive, growth, moderate, and conservative.

The investment strategies are as follows:

Aggressive investing: It’s risky, but if done correctly, it provides the highest potential returns.

This strategy includes stocks, mutual funds, and ETFs that carry higher risk levels (high-risk) but offer the chance to make the greatest gains.

Growth investing: It’s not as risky as aggressive investing but also provides higher potential returns.

This strategy includes stocks, mutual funds, and ETFs that carry a low-risk level (low-risk) but offer the chance to make the greatest gains.

Moderate investing: It’s not as risky as aggressive or growth strategies but provides a moderate return.

This strategy includes stocks, mutual funds, and ETFs that carry an intermediate to a moderate risk level (moderate-risk) but offer the chance to make moderate gains.

Conservative investing: It’s as safe as moderate strategies but offers the lowest possible returns.

This strategy includes stocks, mutual funds, and ETFs that carry a moderate to low risk level (low-risk) but offer the chance to make the lowest possible gains.

If your saving goal is more than 20 years away, you should consider using a conservative investment strategy.

In this case, you can put almost all of your money in stocks. Since most people find it hard to pick specific stocks, options such as stock mutual funds, ETFs, and index funds are the best way of investing.

If your savings goals are short-term, such as 5 years, invest in safer investment products such as bonds.

You can also opt to open an investment account (IRAs included) and invest through Robo-advisor or services that manage investments such as computer algorithms.

Robo advisors invest your money using specific pre-programmed algorithms that are based on the investment strategy you choose and your personal goals.

They usually provide free investment advice, but you have to pay a certain amount if you want them to manage your investment (management fees).

Again, before choosing an investment strategy, understand your investment options and how they work.

How Do I Know If I’m Ready to Invest?

The best way to know if you’re ready to invest is to ask yourself how much risk you are willing and able to take with your money.

This is an important factor when deciding your investment strategy.

Another thing to bear in mind is how long it will take you to reach your savings goal.

If it will take you more than 20 years, your best bet is to start investing with a conservative strategy and then move on to other strategies.

If your investment goal is short-term (five years or less), you should use a moderate approach.

Remember, the key to taking control of your money is to start investing as early as today.

Investing in yourself or saving for your future should be at the top of your list.

Also, if you still need help determining how much money to invest and which strategy to use, you can consult a financial advisor for assistance.

Tips For Investing That You Should Know

As you know, there are four investment strategies: aggressive, growth, moderate, and conservative.

Each strategy includes different types of investments like stocks, bonds, mutual funds, and exchange-traded funds (ETFs).

It is important to note that you should use different types of investments within each investment strategy when you diversify your portfolio.

For example, you can have growth or aggressive portfolio made up of different stocks or ETFs.

This is key because if one investment fails, it won’t affect your entire portfolio.

There are different ways of diversifying your portfolio, but you can start with the basics.

If this is your first time investing, then start by choosing a low-risk strategy such as moderate (if your savings goals are short and you’re young) or by using a conservative strategy if your savings goal is long term and you’re saving a considerable amount of money.

When investing for the first time, always remember to invest wisely by doing your research and choosing a stable investment product.

If you are new to investing, I recommend that you stay away from high-risk products such as penny stocks and IPOs.

You can invest in mutual funds or individual stocks but start with easy-to-use exchange-traded funds (ETFs). 

Many people ask me what the top starting investing options for beginners are, and I always say invest in index funds and keep it super simple. Read more on my review of the best Vanguard index funds for your Roth IRA.

If you’re willing to do some more research, then investigate stocks and find out if there are any promising companies in your industry that you wish to invest in. 

You can also start with a stock trading system to see if you’re comfortable using it and then move on to more complicated investments such as individual stocks and bonds.

Remember, don’t get carried away with the hype of getting rich-quick; that’s a big mistake that most people make.

Investing is a long-term plan, so take it one step at a time and don’t try to be overwhelmed by all the different options.

Diversify your portfolio and then watch your money grow. If you’re planning to buy a home or car, you will need to have a considerable amount of money saved up before applying for a loan.

Other important financial goals that you should work towards include: 

  • College tuition for your children or grandchildren 
  • Retirement savings and income replacement 
  • Traveling abroad or taking a vacation every year

Many people use different investment strategies to reach these financial goals.

If you have a moderate amount of money, I recommend using both aggressive and growth strategies. However, if you’re saving a considerable amount of money for retirement, then I would recommend that you use the conservative strategy as well.

When it comes to your investment strategy, diversify your portfolio and keep an eye on the long-term. 

Always remember that investing in yourself or your future should be at the top of your list.

One last thing that you should remember is not to jump from one investment product to another every month or two.

Always stay with one product and keep an eye on it so that you can see how well your investment is doing.

If the investment is performing well, you can fine-tune your portfolio and diversify your investments even further.

If the investment isn’t doing well, then start looking for another option until you find one that’s right for you.

Conclusion

We’ve discussed the basics of investing and, most importantly, how to get started. If you invest wisely over time, your money will grow into something substantial.

There’s never been a better time to invest your money, and thanks to the technology available today, it couldn’t be simpler.

With platforms like Robinhood or Acorns that make investing accessible for everyone by making things more convenient than ever before – you’ll have nothing holding you back from striving towards financial freedom.

Was this article helpful to you? We hope it was! Let us know in the comments section if there is anything else you want covered on investing so we can help out even further!